If some grand jury evidence is any indication, prosecutors could face a difficult task in convicting former thrift kingpin Charles H. Keating Jr. of state securities fraud.
Grand jury testimony released Friday in connection with a 42-count indictment against Keating and three others appears to contain conflicting evidence about Keating's complicity in allegedly fraudulent sales of bonds at Irvine-based Lincoln Savings & Loan.
For the Record
Los Angeles Times Tuesday November 20, 1990 Home Edition Business Part D Page 2 Column 3 Financial Desk 3 inches; 99 words Type of Material: Correction
Robert Rifkin--A statement in a Nov. 5 story about grand jury testimony in the Lincoln Savings & Loan investigation was incorrectly attributed to Robert L. Rifkin, a state Department of Corporations official. William D. Davis, commissioner of the state Department of Savings and Loan, testified that he believed that Lincoln's parent company could not repay debt securities offered at Lincoln branches, and he provided information to Corporations Department officials in an effort to block the sale of those securities. The agency, though, approved the sale. Rifkin testified that his agency considered ordering a halt to advertising for the securities, but the agency decided not to issue such an order.
Some of that evidence even appears to show that Keating and others tried to stop the questionable practices. For instance:
* The last two presidents of Lincoln--before its April, 1989, collapse--told sales people selling bonds offered by the thrift's parent company that the issues should not be sold to "little old ladies in tennis shoes."
* Keating, then chairman of the parent firm, American Continental Corp., "hit the ceiling" in April, 1987, when he heard that bond sales people were getting bonuses, contrary to assurances the company had made to state regulators. Regulators have said they would have shut down the sales had they known bonuses were being paid.
* In December, 1986--when bonds were first offered at Lincoln's 29 Southern California branches--S&L employees were told that they were not to sell American Continental bonds, another regulatory prohibition.
Such information favorable to Keating and his associates did not stop a state grand jury from indicting him and three others in September.
But the testimony, buried in the nearly 4,600 pages of grand jury transcripts, indicates that prosecutors from the Los Angeles County District Attorney's office may need much more damning evidence to persuade a trial jury to convict the four defendants.
The grand jury, after all, considered mostly evidence brought before it by prosecutors. It had only to determine that crimes had been committed and that there was probable cause to believe that the defendants committed the crimes.
A trial jury faces much tougher standards of proof. It must find guilt beyond a reasonable doubt before it can convict Keating, former American Continental President Judy J. Wischer and Robin S. Symes and Ray C. Fidel, the last two presidents of Lincoln. The charges carry a maximum of 10 years in prison.
All four defendants have pleaded not guilty, and their attorneys say that the evidence contained in the grand jury transcripts fails to prove their clients' guilt.
The charges against the defendants stem from purchases by thousands of mostly elderly Lincoln depositors of nearly $200 million in American Continental bonds at Lincoln branches. Many of the depositors were swayed by high-pressure sales pitches that misled them into believing that the bonds were federally insured or safe.
The bonds have become worthless since American Continental filed for bankruptcy protection in April, 1989, and regulators seized Lincoln the next day. Regulators estimate that the collapse will cost U.S. taxpayers more than $2 billion, making it one of the costliest thrift disasters ever.
Prosecutors from the office of Los Angeles County Dist. Atty. Ira Reiner, who was appointed as a special state attorney general for the case, say they are certain that they have more than enough evidence to put Keating and his associates behind bars.
Among the 89 grand jury witnesses were 43 bondholders, 24 current and former Lincoln and American Continental employees, and a dozen state and federal regulators.
There is little doubt from the testimony that many of the bondholders were misled by sales people and didn't receive important documents warning them of the risks of buying the bonds.
Many of the employees name former Lincoln president Fidel as the person who told them or relayed information to them about bond sales.
But much of the potentially more damning testimony from employees did not appear to link Keating, for instance, to specific illegal acts.
Stronger evidence may appear in the more than 600 pages of exhibits that were not released publicly with the transcripts. Witnesses referring to those documents, though, pointed out that former American Continental president Wischer, for instance, signed advertising statements that were not cleared first through state securities regulators, a violation of state law.
Defense challenges to the indictment begin in open court on Friday when Los Angeles County Superior Court Judge Lance A. Ito hears arguments that the indictment, grand jury testimony and exhibits fail to state exactly what the defendants did that was wrong.
Much of the grand jury testimony also covers areas that are unrelated to bond sales and more likely included in a much broader federal grand jury investigation that has targeted 20 people. One person, Tucson developer and former Lincoln borrower Ernest C. Garcia, pleaded guilty last week to one count of bank fraud.
The testimony also covers areas being investigated by the Senate Ethics Committee, the Federal Election Commission and the Securities and Exchange Commission.